JPMorgan published a wide-ranging report on blockchain this week, touching on the technology's prospects for mainstream adoption and the viability of stablecoins such as the Facebook-backed Libra project.
This year's JPMorgan Perspectives report contends that blockchain has seen more extensive use among companies like stock exchanges, although mainstream adoption is still years away.
Among the key conclusions from the report's authors: they "see the long-term potential or Distributed Ledger Technology (DLT) to transform banks' business models by providing efficient and resilient information transfer and storage once sale has been achieve..." But that declaration comes with the caveat that the pace of progress will depend on resolving legal and technical concerns, particularly "cross-platform integration."
"While we see widespread implementation of blockchain solutions at least three to five years away, challenges such as the macro-economic environment, legal and regulatory frameworks and technical challenges—such as cross-platform integration—may decelerate further progress," the report states.
According to the 74-page report, banks are increasingly using distributed ledger technology (DLT) to build their settlement/clearing and collateral management systems. It also notes that "the crypto market continues to mature, and cryptocurrency trading participation by institutional investors is now significant."
A close look at Libra
JPMorgan's report features a detailed analysis of Libra – the Facebook-backed stablecoin project that debuted last summer and has since attracted the attention of the world's policymakers, including central bankers.
In particular, the report's authors hone in on the viability of Libra as a payment system, calling into question whether the network can achieve a stable scale in the specific absence of short-term liquidity facilities.
As they note:
"Stablecoins, and Libra in particular, have the potential to grow substantially and ultimately shoulder a significant fraction of global transactional activity. However, as currently designed and proposed, they do not take into account the microstructure of operating such a payment system. A lack of short-term liquidity facilities, particularly those relatively insulated from market forces, introduces the risk that activity grows faster than the underlying base of currency can safely support."
"The risk of payment system gridlock, particularly during periods of stress, could have serious macroeconomic consequences," the authors continue.
Looking at stablecoins as a whole, the report's authors notably remark that "the world is absolutely ready for private money–most of what we think of as fiat currency is already privately issued."
"However, the likely regulatory and compliance required for stablecoins to, for example, be accepted as payment for liabilities to the central government would be significant," they go on to write.
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